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The dynamics of deposit euroization in European post-transition countries: evidence from threshold VAR

This paper investigates determinants of deposit euroization (DE) in twelve European post-transition economies using both linear and threshold models. Results suggest that exchange rates and interest rate differentials are important for explaining DE. Results for the two countries with the highest macroeconomic and institutional credibility and flexible exchange rate regimes, the Czech Republic and Poland suggest no evidence of threshold effects, while for other countries threshold behaviour was found. Threshold VAR results indicate depreciations have a stronger effect on DE than appreciations, while interest rate spreads widen more after exchange rate depreciations than after appreciations. Moreover, we found evidence that DE changes more strongly after interest rate differentials increase than after they decrease.

cointegration; deposit euroization; transition; threshold VAR

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